Imagine that your family owns and controls a fifth-generation multinational conglomerate that’s a leader in the food manufacturing industry. You’ve recently been appointed to serve on the board as a family director from your generation. Early in your tenure, Covid-19 hits and suddenly, fundamental questions that challenge the very viability of the enterprise confront a board that’s dominated by a non-family CEO and a majority of independent directors. Faced with the prospect of plant shutdowns and severe disruptions to the supply chain, management proposes an emergency plan to protect the company’s cash reserves by immediately initiating historic layoffs, a shutdown on all dividend payments to family shareholders (75 of whom depend on dividends for their livelihood), and the possibility of selling shares to the market at a deep discount, threatening the family’s control of the business.
Why Your Family Business Needs Family Members on the Board
In the wake of the pandemic and rising geopolitical tensions, many family business owners have woken up to the reality that the absence of a competent and engaged board undermines the resiliency of their family enterprise and poses a significant risk in an era of greater turbulence and uncertainty. What’s more, if family representation is missing from the board, it is difficult to align the interests of the owners with those of the company in a sustainable way. Understandably, boards often focus the bulk of their attention and oversight on what’s happening “below” them with respect to strategic planning and execution. In family companies, however, boards also need to track what goes on “above” them, among the owners. That’s what makes having a family director on the board so important — they’re ultimately accountable for aligning the competitive strategy for the business with the continuity strategy of the owners. The resilience of the family enterprise hinges on getting that alignment right. A strong set of family directors can buttress the board’s linkages “upwardly” and ensure that the owners remain united and committed to the success of their enterprise.